Office Depot Inc (ODP), OfficeMax Inc (OMX): The War for the Supply Closet – Can Staples, Inc. (SPLS) Stave Off Invasion?

Page 1 of 2

In the wake of the recent announcement of merger talks between Office Depot Inc (NYSE:ODP) and OfficeMax Inc (NYSE:OMX), pundits and analysts have increasingly weighed in on the future of the largest office supply chain, Staples, Inc. (NASDAQ:SPLS). After watching shares decline 45% over the past three years, contrarians are piling on and sounding the horn for a turnaround.

While turnaround stories make great press (who doesn’t love reading about Lou Gerstner at International Business Machines Corp. (NYSE: IBM) and Steve Jobs at Apple Inc. (NASDAQ: AAPL)?), the fundamentals just don’t support the bullish case for Staples. Gerstner and Jobs redefined IBM and Apple; they overhauled strategy and fundamentally changed the way those companies did business. Staples is undergoing no such revolution.

Office Depot Inc (NYSE:ODP)The bulls point toward $1 billion cash on the balance sheet, and total cash flow from operations of nearly $900 million for the first three quarters of 2012. But material increases in competition, amid already lackluster growth, are too significant to justify any reversal in the stock’s downward slide.

The Competition

The notable news of late is of course the merger of Office Depot Inc (NYSE:ODP) and OfficeMax. The new combined company would have revenues of nearly $18 billion, compared to Staples’ revenue of $25 billion last year. Efficiencies gained by combining operations could save upwards of $500 million-600 million in costs, according to various analysts covering the space. The efficiencies would primarily be driven by closing overlapping and underperforming stores. If this deal goes through, Staples would face a new, formidable competitor with significant scale and upside.

The other takeaway of these merger talks, which is just as significant, is the aggressiveness in the industry to upend the status quo. Management at Office Depot Inc (NYSE:ODP) and OfficeMax are making bold moves to improve their business. That determination, as of yet, is not evident at Staples.

Furthermore, there is an elephant in the room. Over the last two years, Amazon.com, Inc. (NASDAQ:AMZN) has been slowly and steadily building its office supply business, and while Staples has a strong online presence, it has come under intense pressure from the low-cost, low-margin Amazon model.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!